Yahoo and Alibaba Reach An Agreement on Alipay

By EVELYN M. RUSLI

Published: July 30, 2011

7:32 p.m. | Updated

After a simmering feud that reached soap opera proportions, Yahoo and the Alibaba Group, the Chinese Internet company it partly owns, have reached an agreement over a Chinese payments processing company.

With SoftBank, another major investor in Alibaba, the companies announced on Friday a multipronged deal that guarantees Alibaba certain payments in the event of a public offering of the payments company, Alipay, or another liquidity event.

If Alipay goes public, Alibaba will be paid at least $2 billion but no more than $6 billion, plus certain licensing fees. Under the agreement, Alipay has also agreed to maintain its current relationship with the Chinese online retailer Taobao, one of Alibaba's top e-commerce companies.

''Over the last few months, we have worked cooperatively with our partners at Yahoo and SoftBank to reach an agreement that serves the interests of all parties,'' Jack Ma, Alibaba's chief executive, said in a statement. ''Most importantly, Alipay was able to secure the license it needed to continue operating.''

The resolution is a welcome one for the Alibaba's investors Yahoo and SoftBank, which have been trying to reach a deal with Alibaba for several months. Last year, Mr. Ma spun Alipay out of Alibaba to secure licenses to operate as an electronic payments platform, amid new regulations in China. The company's partners cried foul in May of this year, with Yahoo and SoftBank claiming that they had not approved the spinoff and only learned of the deal in March.

The debacle irked investors, who were bothered by Yahoo's lack of knowledge and the loss of Alipay's value to Alibaba's portfolio. David Einhorn, the influential hedge fund manager of Greenlight Capital, dumped his entire stake in Yahoo, saying in a letter to investors that this ''wasn't what we signed up for.''

Yahoo's 43 percent stake in Alibaba is considered by many to be its crown jewel, worth more than the company's domestic business, which has struggled against rivals like Google.

''This is a good outcome for Yahoo and for our shareholders, as well as all the parties to this agreement,'' Carol Bartz, the chief executive of Yahoo, said in a statement on Friday.

While the agreement resolves a contentious issue, investors remained cautious on Friday. Shares of Yahoo fell nearly 3 percent, or 40 cents, on Friday, and closed at $13.10. ''On the face of it, it seems like a good deal for Yahoo, given how acrimonious the relationship with Jack Ma and Carol Bartz had become and how little leverage Yahoo had,'' Jordan Rohan, an analyst at Stifel Nicolaus, said on Friday. But he said the drama also exposed how Yahoo's fate in Asia is dictated by the whim of Mr. Ma.

''Even if the ownership of the rest of Alibaba group is not altered, the path forward seems to be controlled 100 percent by Jack Ma and his team,'' he said.

The heavy hand of China's government also looms large. Given the country's strict regulatory environment, analysts raised doubts on Friday that an Alipay offering would come soon or be as lucrative as Yahoo hoped.

''They did not give any clarity on a potential timeline for an I.P.O.,'' said Scott Kessler, an analyst with Standard & Poor's. ''The Chinese government also seems focused on domestic ownership for this company, thus making any global I.P.O. unlikely if not impossible.''

This is a more complete version of the story than the one that appeared in print.